Ghost in the payroll
How to uncover payroll fraud
Many organisations don't realise they are victims of payroll fraud, so how do they find out?
The damage caused by payroll fraud and ghost employees can be catastrophic, from millions lost to the additional costs of investigations and prosecutions. Often, companies forgo legal action and simply dismiss the fraudster, who then moves on to another business and restarts their crimes.“Unfortunately most companies only uncover payroll fraud by accident. They don’t realise it’s happening, and it can cost them millions,” says Yolande Schoültz, founder of YSchoültz Attorneys | Conveyancers | Notaries, who has investigated numerous such cases.
Companies can avoid these losses through regular checks on hiring and terminations, and by conducting annual face-to-face audits using modern payroll platforms. These tools help detect irregularities and promote accountability across departments.
Why payroll fraud happens
Payroll fraud is not difficult to detect when companies are vigilant. Schoültz explains that one of the most common schemes involves creating ghost employees - either entirely fictitious or individuals who have left the company but remain on the payroll. The fraudster then changes the bank details to their own. Another tactic targets employees paid irregularly, redirecting their payments to fraudulent accounts.
Such schemes persist because payroll operations often lack oversight. “Who is responsible? Finance or HR?” asks Schoültz. “It should be both, but finance must take the lead. Payroll is often left alone. As long as people are paid, nobody asks questions.”
How to spot payroll fraud
Payroll fraud can have devastating financial consequences.
According to the Association of Certified Fraud Examiners’ 2022 report, companies lose an average of 5% of their annual revenue to employee fraud. Schoültz recalls one case where a South African company lost over N$7 million across several years through 13 ghost employees.
“It’s like a slow bleeding wound,” she says. “The fraud usually extracts small amounts across multiple fake employees and over many years.”
The perpetrator’s lavish lifestyle eventually exposed them, but Schoültz warns against relying on suspicion alone. “An annual face-to-face audit is very effective. Have people bring their ID books and match them to the payroll list. Ideally, this should be done by an independent party, as payroll fraud often involves collusion.”
Responsibility and technology
Schoültz stresses that payroll oversight must be a finance priority. “People don’t know what they don’t know. Payroll is often the company’s biggest expense, yet it’s neglected.”
Sandra Crous, MD of Deel Local Payroll, agrees: “Modern payroll systems offer automated reporting, remote administration, and alert systems that give HR and finance passive visibility. Legacy systems sit in a corner with few people even knowing what’s going on.”
According to the Chartered Institute of Payroll Professionals, in South Africa companies lose over R100 million annually through payroll fraud - more than in cash transit heists. “People just don’t check,” says Schoültz. “Payroll is underestimated. Everyone just wants salaries paid, without understanding the system behind it.” - Distributed by APO Group on behalf of Deel Local Payroll, powered by PaySpace.